Exploring the 2020s through the lens of the 1920s, this discussion at the World Economic Forum Annual Meeting 2026 considers economic shifts, societal changes, and technological developments shaping the decade.
At Davos 2026, panelists used the 1920s as a cautionary “rhyme” for today’s tech boom, geopolitical fragmentation, and policy strains. Historian Adam Tooze argued the 1920s were the first test of a dollar-centered order that relied on “technology and finance” to compensate for weak politics—and failed when the U.S. “defaults on its hegemonic obligations.” Christine Lagarde drew a direct parallel: rapid innovation alongside trade frictions. But she warned AI differs from earlier breakthroughs because it depends on scale, data access, and standards; fragmentation could choke diffusion and productivity. “Frontier model today requires about $1 billion,” she noted, and restrictions on data and scaling could be “significantly jeopardized.”
Larry Fink emphasized competitive urgency: without Western cooperation, “China wins” due to scale and looser privacy constraints. He expects some “big failures” but not an AI bubble, framing constraints as growth, deficits, and capital markets’ ability to fund massive investment. Ken Griffin pointed to the true “recklessness” as sovereign overspending and the hope that AI becomes a productivity “savior.” On tariffs, Lagarde and Griffin argued incidence is largely domestic: tariffs are “regressive on the American consumer,” and “96%” may fall on U.S. consumers/importers. The session closed on a call for “minimal cooperation” to avoid repeating past breakdowns.
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Good morning everybody I'm Andrew Ross Sorkin. I am a reporter for the New York Times and CNBC, and also the author of a book called 1929, which to some degree may help set the backdrop for our conversation this morning as we talk about our economy today. But we think about it in some kind of historical context, and that may very well be to think about the 1920s, which doesn't mean that we are preordained to have a crisis, by the way, like 1929. We have an extraordinary panel here to join me in conversation. Larry Fink is here from Blackrock. Of course, he oversees now $14 trillion. And I should also mention is the co-chair of this year's World Economic Forum. And you've done an extraordinary job interim US Ken Griffin is here. Ken Griffin is here. He's the founder and CEO of Citadel. He oversees $65 billion in investment capital, and he has been at the forefront of finance over the last several decades, and has been one of really the most prescient about where the economy has been headed. And we're going to talk to him in just a moment as well. And then we have European historian Adam Tooze here. He's also the director of European Institute at Columbia University. He's the author of five books, including The Deluge, The Great War America and the remaking of the Global Order, 1916 to 1931. So that will capture some of the period we're talking about. And in just a moment, Christine Lagarde is going to be joining us, and we are looking forward to talking to her as well about this. But I'm going to start with, Adam, if you could, to sort of help us set the table, to give us some historical context to this moment, because there are some remarkable parallels. We are going through a remarkable boom right now. Some of it's, technology related. There was a technology related issue. Then there were all sorts of monetary issues, then, tariffs, which came a little bit later. But you can start to see what that looks like.
Thank you so much. It's a real, real pleasure to be here. And I do want to express my thanks to that, I think, for putting on this Davos the way he has. It's been quite an extraordinary experience, a real privilege to be here. And yeah, I want to take up exactly where you left off Andrew because I think you're right. I don't think we should be in the business of doing automatic repetition type stories about history. I don't think that's how history works. Mark Twain's great line about history not repeating, but rhyming is a useful one. And I do think there are various points in the 20s that are very pertinent to our current moment. One is the technological side. It really was a moment of a new era, especially in electrical technology, but also in mass production. So this is the era of Ford, quintessentially. This is when fordism becomes a global phenomenon and also a kind of social model. It's a high wage, high effort, high consumption bargain which stabilizes in the best case, high levels of consumption and the growth model of the 20th century. But I think, more ominously, and I've really got Mark Carney's speech from yesterday, a really astonishing speech in my mind, is that one of the things we prefer to forget about the 20s is that it is, to most contemporaries, the first moment of unipolarity. This is the moment they think liberal power is triumphant. Why? Because the liberal powers won World War one. The 20s follow World War one, an epic Revolutionary War, the First Total War, and the powers that prevail are the powers that, in a sense, for a while still held the ring, and whose the end of whose hegemony Mark Carney was talking about yesterday afternoon. In other words, the British Empire, the French Empire and the United States, two republics, the liberal empire par excellence and Russia was their only ally. And it succumbed to revolution in 1917 and becomes a more radical power. And that basis for their power was money. It was finance. It was the dollar's hegemony in the 1920s that was supposed to anchor this world that was otherwise really fragile. So for me, the haunting, the haunting evocation of the 20s is this was our first hour. I mean, collectively, people like us first effort at stabilizing the world. And we failed at the politics, famously at Versailles and in the League of Nations. We thought that a good substitute would be technology and finance. And for a while in the 1920s, that formula looked like it would work, because in the end, the gold standard system became an increasingly dollar centered system, and the hubris and the failure of imagination and the failure of politics never provided the underpinnings for for that structure. That was not a moment I expected to have in my life to be speaking about the 1920s and have Madame Lagarde appear on stage. Yes. But the the, the the discrepancy between the power of economics, the power of production and the reliance on money and notably the dollar and the failure in that context to build deep political connections for me, is really what the 20s stand for. And and that is why, for me, it's so resonant in the current moment, because the crucial power here is the United States. The crucial power in the 20s was the United States. Those new technologies were American. The money that mattered was American. And it's America that essentially both for essentially for domestic political reasons, defaults on its hegemonic obligations.
Madame Lagarde, welcome you. Thank you for joining us. We're very happy to have you. And I would actually go to you if I could, just for a moment. just now. Just now. And but I'll tell you why. Because, you gave a speech back in the fall of 2024, and you said that you believed actually that there was a parallel taking place between the AI bubble and the 2020s and 1920s and 2020s. And you said today, like back then, we are seeing setbacks in global trade integration at the same time as strides forward in technological progress, we're trying to sort of put this moment in a historical context. And so I was hoping you could elaborate and explain what you meant by that.
Very happy to. Thank you so much for having me. And I'm sorry I'm late, but initially it was scheduled at nine, and I had something really committed at 815, and I had to run from wherever I was. So I trust that Adam went through the political similarities, divergences, and I don't want to venture there. What I meant in my speech, which was back in in 24. So things have changed since that and they have not changed for the better. What I meant to compare is the technological breakthrough that took place in the 1920s. Whether you look at the size and scope of the electrical grid, whether you look at the combustion engine and its developments, whether you look at the assembly lines that were developing, those were technological breakthroughs that took place in those in those years and decades. At the same time, you also had a stock market that was doing very well. And what we observed in the 20s and maybe Adam, you went through that is a significant change in the global trade. I wouldn't call it a collapse, but it went from 21% of GDP, roughly down to 14% in a matter of a few years. So what we're looking at now is galloping digitalization of our economies, with a particular focus on artificial intelligence. We're seeing stock markets that are doing extremely well, particularly well not only in advanced economies but also in emerging market economies. And we are seeing a fragmentation of geopolitics. More on that and to be continued, which is accompanied by an increase of the tariff of the import and export restrictions in almost all categories of products. So and this is unprecedented, as long as WTO observes those restrictions, we're not seeing yet the collapse of trade. In the numbers that I have mentioned, not yet. It's still holding. It's declining a bit, but it's still holding. Question is, is that going to hold? But the key point that I would like to make if you give me a little more time. So the big difference between the 20s and now, in a way which makes the current situation more unpredictable and probably more icy, I just came back from this cold out there. So icy is a good word for that. It's the fact that those breakthrough of the 1920s could diffuse to use a colloquial language, could diffuse within boundaries within national territories you did not necessarily need in those days, the scale, the network effects that you need now. Now, if you ask the big G's in digitalization and the big spenders in artificial intelligence, and just for memory to develop a frontier model today requires about $1 billion. If you ask them what they need, they will say access to data as large as possible. They will say scale in order to really amortize the investment cost of the development of models. Now, that would be significantly jeopardized if we have limited access to data because of different privacy laws around the world and more protectionist barriers that would prevent the scaling of these investments. Now, I might be having an overly negative and pessimistic view of what we are seeing at the moment, but I think that's a real threat. And the development of AI, the gain of productivity that we hope for is difficult to reconcile with fragmentation in terms of standards, licensing, access. And I would contend that this can only be remedied by a degree of cooperation that is going to be a factor of willingness of people to accept and tolerate different paradigms, different cultural preferences and different views of the world. It's difficult.
Larry. Yeah, speak to that if you could, because I can tell you, you're you're thinking about it.
Well, I spent a lot of time on it. I think what Christine said is a foundation of a of a major issue. But I would turn the lens a little bit, I think for the Western economies, if we don't cooperate, we don't scale. China wins. There's enough population. Their privacy laws are obviously quite different there. And so the data that they can accumulate, which is giving them a dramatic advantage, and I think that's going to be one of the big overwhelming things when people ask me, are we in an AI bubble? I said, I think there's going to be some big failures, but I don't think we're in a bubble. But that being said, I would much rather say that we need to spend more money to make sure that we're competing properly against China. And so to me, all the issues that Christine has raised, the they're they're they're they're they're obvious. There are things that we need to be addressing right now. We're at this point now where everybody believes there's going to be a massive j-curve of demand for for that information from AI. The key to that is making sure that the demand only comes if technology is diffused. For more applications, more utilizations if technology is just the domain of the six hyperscalers, we will fail. And so to me it is. And, you know, we don't have enough information yet. The key, how fast we diffuse it, how quickly is it adapted and adopted? To me are going to be the two key characteristics, the parallels for me for 1929 and, and evolving into 2029. To me, the big two factors that are to me, the limiting factors are going to be can we grow our economies fast enough to overcome our deficits? That's going to be one big issue, especially with the rising deficits of the US. And the and the two, the capabilities of the capital markets to continue to fund these investments, to make the Western economies having the capabilities to have that j-curve in the adoption of technology.
Let me ask you, let me go to Ken on this. And, but and it's reflective though of something actually, Larry has talked about over the past couple of years. You actually Larry wrote a letter called The Democratization of Finance. That was a phrase used in the 1920s. There was a there was a real effort to democratize finance, to raise funds from the public. That was a huge amount of debt that was, that that helped finance the decade. And I wonder how you think about this moment. And sort of when you think about the systemic risk of this moment, the concentration of AI, the debt that's financing, some of it I know some of the hyperscalers, obviously enormously powerful and have extraordinary, funds. But there is also a lot of debt behind all of this that's sloshing around.
So first of all, it's a it's a pleasure to be on the gloom and doom panel.
Yeah.
We're not we're not you know, 1920s were an extraordinary period. As I said at the beginning, it's not preordained that it has to have.
The end note of the 1920s, which was, of course, the Great Depression. Andrew. So let's let's take a step back and talk about where we are right here, right now. The the area of recklessness is the is the spending of governments around the world who are all, with little exception, all spending well beyond their means. That's the recklessness of this moment in history. This is not a parallel to the 1920s in terms of the recklessness of the of the private capital markets. It's a story of the recklessness of government spending within the private sector. There's a huge question as to where AI will take us. And I was carefully taking notes and listening to what Larry has to say or to what Madame Lagarde has to say, because this is one of the big issues of our moment. Will AI create the productivity acceleration that is honestly just hoped for in Washington and in the halls of government around the world as a way to overcome the profligate spending that we're currently engaged in. Like the world, the world needs a savior. And the hope is that AI is the Savior that we need for productivity. And the challenge with this is, is it may or may not be. We just don't know yet. Now, there's a tremendous amount of hype around AI, and in some sense, the large AI companies need to create that hype to raise the tens or hundreds of billions of dollars of investment that are going to the field. Like you wouldn't be able to raise hundreds of billions of dollars we'll spend. And Larry can probably correct me on this, but roughly $600 billion this year in CapEx for data centers in the United States.
I think it could be larger.
But does that mean that it's getting hyped up too much or it's just the hype is required as a as a sales mechanism?
Go ahead.
First of all, so much of the data centers are being built for cloud, right. And the big issue is going to be in terms of monetization of of of the spend, the data centers are being built for, AI requires more advanced chips. The question is what is the lifetime of that chip? If we have new technological changes in the lifetime of the chip in one year, then that spend is going to be really a bad spend. If the lifetime is expected to be is 4 or 5 years, and then those chips can be used for cloud, then then I think these investments are going to prove to be good investments. So I think it's it's going to be, you know, if the speed of technology changes and all these investments now, they're going to be it's going to be challenged. But I agree with Ken. I think we don't know enough. But I'm I'm personally very optimistic on how AI is going to affect the world economy.
Madame Lagarde, can I ask you a question to take on the issue that I think Ken raised just about the amount of debt in the system today, not talking about corporate debt, but but sovereign debt. And the reason I ask is back in the 1920s, at least in the United States, there was a budget surplus. I believe there was a budget surplus and a lot of other countries as well. Not everywhere, of course, but today in the US, there's $38 trillion of debt. And the playbook that we all learned, actually in the aftermath of 1929 is what do you do when there's a crisis to stem it? You throw money at the problem. Ben Bernanke learned this and effectuated it in 2008. We did it again during the pandemic. And the thing that I've always thought about is the next time there is a panic of some sort and there will be a pullback of some sort, whether the politicians say, well, we now have the playbook, we know what we're supposed to do, and we're going to write a check for $5 trillion, because that's what we're supposed to do. Except that we keep wondering, is there some kind of invisible line in the bond market around the world that turns into a red line, where the investor class says, we're not doing it anymore? And then you then, by the way, you get into sort of an austerity, vicious cycle.
Two things. I'm not going to address your question right away, because I want to come back to a point that was made by both Larry and Ken, I think, and I'm not denying that, investment in artificial intelligence can be extremely net positive and will deliver productivity gains, the amount of which is questionable. And you have a spectrum that is quite large as to how much it will deliver. But I think that to come back to my corporate, my minimum corporation needed for that, we also have to consider that it's capital intensive, energy intensive and data intensive, and we have to be mindful of the three in terms of energy intensity, what kind of energy is being used to manage data will matter. What the consequences will be on the people will matter as well. So I think that in this cooperation approach that we have, which will have to take care of data privacy, for instance, and preferences in different corners of the world, we also need to be mindful of the energy consumption and what kind of energy it is and what impact it has on climate. And number two, we have to be mindful of the consequences for people, because unless we move in this dream world of Keynes, where working is a choice in a way which I don't see on the medium term horizon, we have to understand what consequences it has on people unless we want to risk a dislocation of society. Now, I come back to your point. Yes, debt has increased massively and is increasing in some corners more than others. I think the real question is what is done with that financing that the sovereigns are accumulating? Not all debts are the same debt that is invested in necessary productive projects, unnecessary for security purposes. We'll always find people to finance it. That's my assumption. Debts that are not for productive purposes, that are not going to sustain growth on, on a, on a sustainable basis, that will be far more difficult. So I'm not going to tell you that there is a red line. I'm not going to tell you that central banks will always be around either. But I think that the nature of the the purpose for which debt is subscribed will matter more than the actual volume.
Speak to what you just said. Something very intriguing.
You said going to speak more to it? No to.
No to the idea that central banks might not always be around. What do you mean by that?
Look, I went through my lot of crisis, as many of you have as well. And I remember the days when it was mentioned that central bankers are the only game in town. This is not the right approach to a balanced and durable equilibrium. Measures have to be taken by fiscal authorities. Reforms have to be undertaken. The purpose for which spending is organized has to be thought through, and the consequences on people. If we want society to stay together, right.
So just not trying to put words in your mouth, but.
Are you basically saying that in our legislative branches around the world, we have abdicated responsibility of being fiscally prudent and thoughtful as to how we use society's resources and have become overly reliant upon central banks to continue to try to keep the economy going in the right direction against this onslaught of of reckless spending.
I'm not suggesting it's the case now, but we have observed it in the past.
I mean, the historic irony is that when people talked about central banks being the only game in town in the 20 tens, what they were actually urging is more active fiscal policy. Right? Because the problem was that we had a low flation environment. A stagnant growth, including notable figures at Blackrock, were arguing for more assertive fiscal policy because there was a deep imbalance between the two levers of macroeconomic policy, which was also a lesson of the 1920s. And right now, what we what you're arguing for, I take it, is a more just abstract proposition that it is crucial to have, as Ken, suggesting responsibility in every arm of government. And that responsibility pertains not just to the macro aggregates. I'm hearing you say, but to the specific type of spending. Your distinction between the productive and the unproductive is the is not just for economic purposes, but also for the question of political legitimacy and social coherence. The crucial thing because the social bargain in Europe and in the United States, but really in Europe, is deeply stressed, I think, by the perception that modern welfare states are unproductive and a huge number of really vicious distributional struggles, which are reawakening another 1920s ghost, which is the ghost of fascism. Right? The sort of political parties which certain visitors to the conference would quite like us to give more platform to, who are direct heirs to that kind of tradition. They are mobilizing in Europe right now around the delegitimization of public spending, which acts as on this productive, unproductive, national, international, migrant, ethnic, national. And so that's why these politics are explosive.
But, Adam, in 2010, the mantra was too big to fail, which Andrew wrote about. But because of that mantra, too big to fail, there was a societal view do not bail out. So there was not much fiscal stimulus as much as necessary. But I would I would say the learning lesson from that was 2020, where you could argue we used a huge amounts of fiscal stimulus, probably too much, you know, looking backwards. So I actually believe, you know, we're we're all evolving and in which lever to pull. And so I think, you know, Europe's especially after 2008 and nine, probably did not use enough fiscal stimulus. But, you know, we but in the in the 2020s, because of Covid, we probably used way too much fiscal stimulus.
So it also depends on what structures you have. Again, because the Europeans have they essentially have part time working systems which keep people in employment. Whereas America, with surging unemployment in 2020 and no national unemployment insurance system that actually works, has to rely on this sugar high trillion dollar check in the mail emergency bailout of American society. And it's easy to overdo that. I mean, in my view, it's one of the great macroeconomic success stories of recent times. It has but but the you're absolutely right. The learning here since the 1920s is surely one of the dramatic. We have not had another 1929. That is a crucial point.
I have a different question for Madame Lagarde, and it's actually about the connection between the independence of central bankers relative to the political class. And the reason I ask it is not just because of this particular moment. No.
Just happens to be Wednesday.
But no, but.
No, but this gets to an interesting parallel. It gets to an interesting parallel. If you go back and look at what happened actually in the 1920s and the 1929 in particular, and I read through some of the diaries of the Federal Reserve Board members in the United States during this period. They were so worried about the politics of the moment. They were so cognizant of the politics. It wasn't, by the way, then, that the president in that case, President Hoover, was telling them what to do exactly. It was that they were worried that the central bank unto itself would, which was considered an experiment. Still.
It was still new.
Yeah. Would would be disbanded. You talked about whether central bankers will be here. They weren't sure. They weren't sure whether they were going to tip the balance and that Congress was going to say, enough with you. And so I wonder, and there are lots of times also during some of these crises where the central bankers have to work hand in hand with the Treasury departments and, and president. So here we are in this moment. You publicly came out recently, you know, and signed a letter, around, what's happening in the United States and our Federal Reserve. But how you think about that?
First of all, I would distinguish between what, tribute to your work, because you really went into great details about how they thought in those days and what they feared was. But I would distinguish today between working hand in hand, which in a way, we did during Covid. Let's face it, and fiscal dependence. So while working hand in hand, in particular circumstances as exceptional as they were, I think was completely legitimate, whether there was more, too much. I think we it's a good debate to have. And what form it took is also an interesting one, because between the shock absorber on one side of the Atlantic and the fiscal spending straight to the consumer, I think the jury is out as to what was the most efficient. But fiscal dependency is another matter which I would strongly argue against. You know, for me, the great champion and hero of breaking the back of this dependency of central bankers was Volcker, who took the risk, major one, to really, affect the economy, jeopardize the economy, to make sure that price stability would be delivered. And I think the standing he had with President Nixon at the time, in order to demonstrate the independence of the central bank to restore price stability, something that we should keep in the back of our mind. I'm not going to comment on what's happening just right now, including today. Actually, suffice to say that, with a couple of other colleagues, we did take the initiative to argue in favor of central bank independence in the context of what happened about a week ago.
One of the really fascinating things is that the very idea of central bank independence is a product of the 1920s, and it's a product of the 1920s, because most central banks, unlike the fed, are old institutions like the Bank of England, the Banque de France. And what they have to tackle in the early 20th century is the emergence of modern democracy. Modern democracy being multi-party populist social democrats, right wingers. And it's in that context, the fed, in a sense, born into the crisis. One of the reasons America doesn't have a central bank earlier is it is a democracy. And capitalist democracies are contentious and money is contentious in capitalist democracies, and central banks are incredibly contentious. And America doesn't get there until the compromise of 1913 under Wilson, whereas the others the British, the French, the Germans, of course, have to actually figure out what it means to do market centered, finance centered bank for banks, banking in an actual live social democracy. And it's out of that, that this notion from the very beginning, it was always agonistic to populist democracy from the 1920s onwards, like the phrase is Montagu Norman's phrase knave proof. Right. You want to make the central bank knave proof, which has a certain resonance in the current moment. Right? You you need to make the central bank institutions proof against those kind of pressures. And it's it's been, I think, one of the productive sites for thinking about the relationship between expertise, politics and the pressures of the of the markets ever since, Volcker one might have different views about. But he certainly I would entirely agree with you set the paradigm of the modern independent central banker, whether one likes the paradigm or not. But it's clearly the definitional moment under Carter into Reagan withstanding the pressures of the Reagan presidency, amongst other things.
But just but just.
To put things in context, the the modern central bank represents the reality that we are not on the gold standard that we were on. true back 150 years ago. And I'm not advocating we should be on a gold standard. It's just it's just a very different world. And then the second salient difference between today and going back 100 and some years ago is that debt is ubiquitous.
Yeah.
And in a in a market economy where you have where debt is ubiquitous, deflation. is is terrifying.
Well, this is the reality after World War One. In the 20s, though, debt is ubiquitous, debt to GDP levels in Europe are higher than they'd ever been before after World War One. And no one's on the gold standard after World War One. So in fact, they have to manage democracy, deal with 140, 150% of GDP debt, and figure out how you're going to do central banking. And amazingly, they opt for the gold standard. So it isn't then Britain, France, Germany, none of them were on the gold standard. Italy in 1919. When the 20s begin, they all have to get back there by convergence with the US. This becomes the great clash between Keynes and Winston Churchill in the 1920s is what price are we going to pay? This is the Cross of Gold moment in America. It's William Jennings Bryan. In Europe, it's in the 1920s. What price are we going to pay for Restabilizing? This is what made it look feel like the bad eurozone of the 20 tens, right?
But it's also a big difference between then and.
Now.
Because those monetary policies were totally rigid as a result, whereas we have much more flexibility and many more tools to be used.
And thank God for that.
And a tremendous number of success stories.
Yes.
Yeah. I mean, if you look at if you look at Europe when it comes to price stability, I don't want to jinx you, but it looks really good right now.
Thank you. Larry, there's some good news. Larry, I.
Think you wanted to take the conversation to a different place.
Yeah, I want to bring it back to today and the things that we need to be mindful of. And I think that's the foundation of how we thought about 2026 World Economic Forum in Davos. And that is, how technology is going to be reshaping so many parts of society, whether we get the data right or not. And what I see, from the the lens of Blackrock, we're seeing more and more industries just have economies. You have a huge hyper winter and many losers. And the winners in almost every industry are the scale operators who have the opportunity, the internal cash flow, the earnings power to quickly use AI more readily. And in the name of like Walmart, they have such fantastic knowledge of inventory control that is beyond almost any other retailer. They understand consumer preferences immediately when a consumer buys something, when the thing is taken off the shelf, they could navigate one store versus another store, and you're seeing that in their results. You're seeing them having almost quarter after quarter, achieving higher returns in a period of time when a lot of retailers are really struggling. We had a bankruptcy of Saks and all that, and I see that in every industry, and we're probably going to see that, maybe in every country that the scale operators right now are winning. And that does not translate into a broadening of the world's economic economy. And in many ways it may be narrowing. And to me, that's getting back to what Christine was talking about. How quickly can we see the adaptation and the democratization of AI and technology, to me, is going to be the real pivotal point. Can AI be inexpensive enough and ubiquitous enough that it can be spread across small businesses, medium sized businesses, and they could grow and have the same advantages of the scale? Operator but in the in this period of time, though, the scale operator is winning. I mean, I see that in the asset management industry, the scale operator is, is is having better connection because the utilization of more technology. And I think that's just just at the beginning stages and it's going to represent some huge social issues.
Can I just pivot for a moment and just throw one other big issue that happened not actually in the 1920s, but technically in 1930, that I think is very much on everybody's mind here talking about parallels, which is that in 1930, President Hoover, who had, gone around so desperate to get votes to win the election in 1928 to get votes from farmers, that he pledged to them that he was going to implement tariffs. And 1930 comes around, we already had the crash of 1929. Every economist and banker went down to Washington on their knees and said, please don't do this. I beg you, do not implement these tariffs. And of course, because he had made this pledge to capture these votes, he said he needed to go forward with it. And then, of course, a year later, trade had fallen by 60%. I'm curious how you think about that in the context of where we are now. I imagine the president may even speak about tariffs later today, and also not just what happened in that moment when trade dropped by 60%, but how long it took for some of those tariffs effectively, and because of the politics to effectively get unwound and moved us into a more global, global order that may be getting undone in this particular moment. Who wants to take that on?
I mean, I hear Larry's Theatre not talk so much more about history. So I'm going to like, pivot to the present and say, the big difference is this issue with fiat currency, because what really drove the collapse of global trade in the early 30s is the combination of tariffs with currency disorder, the collapse of the gold standard in 31 and then the introduction of massive amounts of quotas. And we are a very long way away from that kind of world in the current moment. So bad as these are, these looks much more like classic trade war kind of tariffs. It's not great, especially given the volatility of the tariff regime at the moment. That's what really makes it odd historically, is that we just literally don't know from week to week what the American tariff will be, but that I think is a kind of relatively calming. This is one of the axes. I don't see any cause for panic over.
Do you see, though.
I'll go to Madame Lagarde. Do you see these tariffs as a a permanent state? If we were all sitting together in 20 years from now, would, would the tariffs that we're all living through today still be in place to some degree? And that splintering of what our globe looks like and the kind of conversations we have,
I certainly hope not. But let's see, in 20 years time, you might be here, I might not, but, you know, again, I think what matters is to to sort of go under the skin of those tariffs and see who is bearing the brunt of it. And, and we might be surprised. I haven't seen many studies, but there is certainly a study by the Kiel Institute in Germany that identifies the US consumer and the US importer as the key, carrier of the burden of tariff. If I look at the US Europe relationship at the moment, from 2% tariffs back a year ago, we are now at 12 point something. Tariffs average across the euro area. With the threat that is looming around, we would move up to 15% on average with heterogeneity. If 96% of that is on the US consumer and the US importer, that's I don't think that's a very good outcome, particularly in terms of inflation. So I think we need to really go into what are the consequences. What is the spillover impact? What is the inflation outcome as a result, and how is growth affected by that?
Ken, you've been doing the math on that. What do you think?
So, you know, obviously I've spoken out on this topic over the course of the last year and change and and regretfully, I think some of the concerns that I've, I've highlighted have played out its tariffs have been regressive on the American consumer. And we've seen the administration roll back tariffs on on goods that directly touched the American consumer. Not not all goods, but many goods they've rolled back tariffs on. Number two is is who pays for the tariff. Right. With any tax and tariff is a tax. There's always a question who pays the tax. And in this case it does appear there's been 2 or 3 studies that have been done that the incidence of this tax is falling on the American consumer and the American corporation and not on foreign companies. And then, of course, cronyism is is a constant fear with tariffs that you create an environment where the company most connected to Washington is the company that curries favor. And that puts small and medium enterprises at a real disadvantage. And I'm going to I'm going to touch on a point here to go back to your commentary about the rise of these very large, successful businesses. Most of them started as small enterprises in our lifetime. Right. The person to my right runs the world's largest asset manager. He started the world's largest asset manager and created that business in a fraction of a lifetime. It's a tremendous success story. It's the story of the vitality of the US economy that small and medium enterprises in in just a few decades can rise to become global leaders. In fact, if we look at the the AI firms of today, everyone was talking about anthropic and OpenAI anthropic didn't exist a few years ago. OpenAI didn't exist 15 years ago. Nvidia was was a company that made video game processors the three largest mindshare names in AI are all effectively less than roughly ten years old. And it's that vitality that draws capital to the United States that does fuel the economic prosperity of America. And we need to continue to protect the opportunity sets for our small and medium enterprises, because you never know which one will be the next Blackrock, the next anthropic Apple, and so on.
Larry, I have a question for you. One of the the reasons we actually did have a crisis in 1929 was the technology. The New York Stock Exchange couldn't keep up with the trading volume. In truth. I mean, the reason why you see those famous pictures in black and white of people standing, thousands of people standing outside the New York Stock Exchange during October 1929 process. They were standing there because they were trying to find what was happening to their money. They didn't know because the processing was so behind. Today, we can get this information on our phone and down to the millisecond it's almost perfected. At the same time, however, talk about the idea that rumors can spread and spread quickly. You know, in the old days, it took a long time for sort of a bad rumor to spread, and then it took a long time as well, by the way, from the efficiency of it to correct that rumor. But today, and we saw this with Silicon Valley Bank in the United States, for example, the second that somebody says and goes public and says, I'm taking my account from this bank, everybody can go rush for the exits because they can see all of this in a completely different way. And so while the technology is remarkable in one way, I wonder what you think the risks are the other way.
So I would argue that through transparency, there's actually less risk. I think Silicon Valley was a poorly regulated bank. I mean, actually, Blackrock was asked to do a study on their asset and liability mix, and we determined two years before it failed that it was the most mismatched bank, in the United States at that time. So I would argue that was a failure of regulation, not a transmission of information. I truly believe, as you talk about other things, I mean, the transmission of information is processed. Yes. We have daily volatility that can be quite extreme at any one given time. But one of the things that we all forget in 2025, if you picked the first date of each quarter, the ten year Treasury moved three basis points. That's all it did each point January 1st, you know, April 1st. And on the ten year Treasury moved three basis points across. Yes. But in between those quarters there was huge volatility, you know. And so but that's the efficiency of the market. That is the beauty of what Citadel has created, that the fast movement of money equalizes. And we we determine in a very rapid period of time what is fair value. And I think that is a magnificence of the capital markets. The you know, that transparency is, is, is, is the, the I would say the engine of market movement. And Ken should be answering this question because he's one of the geniuses around this, the architecture of this. But but, but I would say getting back to technology for a second, I think the movement towards tokenization, decimalisation is, is necessary. It's ironic that we see two emerging countries leading the world in decimalisation, in the tokenization and digitization of their currency. That's Brazil and India. I think we need to move very rapidly to doing that. We would be reducing fees. We would do more democratization by reducing more fees. If we had all investments on a tokenized platform that you can move from tokenized money market fund to equities and bonds and back and forth, we have one common blockchain. We will you know, we could reduce corruption. So I would argue, that yes, we have more dependencies on maybe one blockchain which we could all talk about. But that being said, the activities are probably processed and more secure than ever before.
We're going to go over time, Ken, real quick, when you think about the technology piece of this right now, I assume you think it's.
Financial markets or technology writ large.
Technologically writ large. I mean, the financial markets, I think are a lot safer because of.
Look, there's a simple, you know, everyone talks about how difficult this moment in history is. Okay. You can live your life you have today or be born as the King of England 200 years ago. Which life would you rather have?
Comes next? Depends on whether you're.
Final word.
, like.
Final word to Madame Lagarde. We're. We're out of time.
You or not.
In history, what year do you think we really are in? What's the what is the closest analogue?
You know, I'm reminded of a quote by, Hamilton to King George. What comes next? I think that's what we all wonder what comes next. But I think we bear all responsibility for what comes next. And my minimal cooperation is the plea that I would put on the table right away.
Madame Lagarde. Adam. Ken, Larry, thank you for the conversation. Thank you very, very much.
It was good.